PRESENTATION TO THE PORTFOLIO COMMITTEE ON COOPERATIVE GOVERNANCE & TRADITIONAL AFFAIRS PRESENTER: MR V MADONSELA 13 NOVEMBER 2012

THE PRESENTATION WILL COVER THE FOLLOWING: OVERVIEW THE PRESENTATION WILL COVER THE FOLLOWING: Overview of the 2011/12 audit report and findings Actions to address internal control deficiencies Actions to respond to findings. 4. Conclusion

1. OVERVIEW OF THE 2011/12 AG REPORT AG FINDINGS The department received an unqualified audit opinion from the Auditor General. The matters raised by the AG on the report can be summarised as follows: Internal controls Leadership Financial and performance management and governance Predetermined objectives Usefulness of information Reliability of information Achievement of targets Non compliance with laws and regulations Annual Financial Statements, performance reports and annual report Material misstatements corrected during the audit Procurement and contract management Expenditure management Non compliance with laws and regulations – payments within 30 days Non compliance with laws and regulations – irregular expenditure incurred Asset Management Inadequate systems and internal controls

2. ACTIONS TO ADDRESS INTERNAL CONTROL DEFICIENCIES AG FINDINGS RESPONSE ACTIONS Leadership The Accounting Officer did not exercise effective oversight responsibility regarding finance, performance management and compliance with laws, regulations and related internal controls. A Post Audit Action Plan has been developed based on the AG’s management report, this addresses the internal control deficiencies in all areas. An implementing committee has been established to attend to the Post Audit Action Plan. The Senior Management Committee approved the plan and monitors the implementation progress on a monthly basis. Internal Audit validates the implementation of the Plan and reports to both the senior management committee and the audit committee. The following are the specific focus areas which are covered as dedicated projects within the plan: Performance management Financial management and reporting Information technology Human Resources Asset Management Internal Audit and risk management Departmental Policies PFMA compliance – 30 day payments & payroll certification. Financial and performance management Management did not prepare regular, accurate and complete financial and performance reports that are supported and evidenced by reliable information. Management did not review and monitor compliance with laws and regulations. Governance The Accounting Officer did not ensure that there is an adequately resourced and functioning internal audit unit that identifies internal control deficiencies and recommended corrective action effectively.

3. ACTIONS TO RESPOND TO THE AUDITOR-GENERALS FINDINGS AG FINDINGS RESPONSE ACTIONS Validity, accuracy and completeness of performance information: AG was unable to obtain all information and expectations he considers necessary to satisfy himself as to the validity, accuracy and completeness of actual performance. This was due to lack of standard operating procedures for the recording of actual achievements by Senior Management. The draft guidelines on performance planning, reviewing and reporting have been developed and will include standard operating procedures. These standard operating procedures are currently being implemented to ensure compliance in the current financial year. Strategic Planning and Performance Management : The Accounting Officer did not ensure that the department had and maintained an effective, efficient and transparent system of internal control regarding performance management which described and presented how the institutions' processes of performance planning, monitoring, measurement, review and reporting were conducted, organised and managed as required by section 38 (1) (a)(i) of the PFMA . Achievement of planned performance targets: Out of a total of 84 planned targets, 36 were not achieved by Department of Cooperative Governance during the year under the review . The department has introduced monthly early warning mechanism in the form of monthly monitoring reports which raises flags on projects that are lagging behind. These monitoring reports are a standing item in the Senior Management Committee meetings(SMC) on a monthly basis.

ACTIONS TO RESPOND TO THE AUDIT GENERAL’S FINDINGS (Cont) AG FINDINGS RESPONSE ACTIONS Annual financial statements, performance reports and annual report The Financial Statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and not supported fully and proper records as required by sec 40(1)(bb) of the PFMA. Material misstatements of disclosure items identified by the Auditor-General in the submitted financial statement were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. The following actions to improve the quality of financial statements have been included in the post audit action plan: Monthly reconciliation of suspense & control accounts. Monthly update of disclosure notes. Development of quarterly & bi- annual Financial Statements. Monthly debtors reconciliation. Procurement and contract management Goods and Services with a transaction value below R500 000 were purchased without obtaining the required price quotation as required by the National Treasury 16A6.1 Invitations for the competitive bidding were not always advertised for the required minimum period of 21 days as required by the National Treasury 16A6.3C Quotations were awarded to suppliers whose Tax matters has not been declared by SARS to be in order as required by the National Treasury Regulation 16A9.1(d) and Preferential Procurement Regulations. The following actions on procurement have been included in the post audit action plan: Prevention of Irregular Expenditure by including it in the Senior Managers Performance Agreement. The use of checklists to ensure compliance Contract management to monitor all contracts. Detection and reporting of irregular expenditure by a dedicated payments review team. Corrective action on previous year’s irregular expenditure which includes the disciplinary action on responsible officials and condonation by the responsible authority. Expenditure management The Accounting Officer did not take effective steps to prevent irregular and wasteful expenditure, as required by section 38 (1)(c)(ii) of the PFMA an Treasury Regulations.

ACTIONS TO RESPOND TO THE AUDIT GENERAL’S FINDINGS (Cont) AG FINDINGS RESPONSE ACTIONS Human Resource Management and Compensation A human resource plan was not in place as required by the PSR 1/III/B.2(d). Persons in charge at pay point did not always certify that the employees receiving payments were entitled thereto as required by Treasury Regulation 8.3.4 The human resources plan is currently in place, approved by the Executive Authority submitted to DPSA and currently being implemented. Procedures are in place to facilitate and monitor the payroll certificates on a monthly basis, the certification has been elevated as a responsibility to the DDG Office Managers. Asset management Proper control systems to safeguard and maintain assets were not implemented as prescribed by section 38(1)(d) of the PFMA and Treasury Regulation 10.1.1(a) The following asset management actions are included in the post audit action plan: Decentralization of asset management accountability. Inclusion of asset management on Senior Manager’s performance agreement Monthly monitoring & reporting of assets at branch level. Monthly reconciliation procedures on Assets. Quarterly asset verifications & reporting.

CONCLUSION POST AUDIT ACTION PLAN In conclusion, the Committee should note the progress on the circulated detailed Post Audit Action Plan for the department which details the progress and the level at which the corrective actions have been implemented. THANK YOU